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What you need to do ensure your car insurer pays out when you need them to

What you need to do ensure your car insurer pays out when you need them to

Picture this: You’re just about to embark on a drive between Napier and Gisborne. You have a half a pint of beer and a meal before setting off on your journey.

You have a crash.

When lodging a claim with your insurer, they ask whether you had any alcohol in the 24 hours prior to the accident. You say no.

You figure half a pint of beer with food is insignificant in the scheme of things and wouldn’t have affected your driving. Why ring the alarm bells unnecessarily right?

Next thing you know it, your insurer gets an investigator on board and finds out you lied, so declines your claim.

‘That’s not fair’, you argue. You believe you would’ve been well within the legal alcohol limit and your insurer can’t prove the alcohol caused the accident.

This is a complaint that has been brought before the Insurance and Financial Services Ombudsman (IFSO).

Yet the IFSO has declined it, ruling that regardless of whether the alcohol did or didn’t have a bearing on the accident, it was essential for the insurer to know whether it had been consumed at all, for it to accurately assess the claim.

The fact the driver provided a “substantially incorrect and material” statement, was enough for the claim to be declined.

It wasn’t the alcohol that saw the claim declined, but the fact it wasn’t disclosed.

Be straight-up and disclose every detail

So what’s the moral of the story? Be honest and disclose everything to your insurer - no matter how irrelevant you think the information is.  

The IFSO says 68% of the complaint inquiries it received in the 2015 financial year were related to fire and general insurance claims. Of these, the highest number related to motor vehicle insurance, very closely followed by house insurance.

While it’s important to make sure you choose the right insurance policy from the get-go, it’s arguably more important you do what you have to, to uphold your side of the contract, so that your insurer pays out when you need it to.

Here is what the IFSO suggests you do to avoid the traps those with car insurance commonly get caught out by.

Ensure you understand the difference between ‘agreed value’ and ‘market value’

The IFSO has declined a complaint from someone who misunderstood the details of their policy, and couldn’t prove whether they had been given false information about the policy by their insurer as this wasn’t documented.

The policyholder thought they had an ‘agreed value’ policy, yet actually had a ‘market value’ policy. This meant that in the event of a total loss, they’d be paid the sum insured as stated on the policy schedule, or the market value of the vehicle before theft, whichever was the lesser of the amounts.

Their car was subsequently stolen.

When it came to claim time, the insurer valued the car at $4000.

Yet the policyholder accused the insurer of misrepresenting the type of cover under the policy when it was arranged.

They also disputed the insurer’s valuations, on the basis that they relied on incorrect information about the state of the vehicle prior to the theft.

All up, they wanted $6000.

Yet the IFSO backed the insurer, as its valuation was in line with its policy document.

While the phone calls the policyholder had with the insurer on taking out the policy hadn’t been recorded, these wouldn’t have held any ground anyway.

When assessing complaints, the IFSO takes the available evidence into account. Yet unlike a court of law, it doesn't hear oral evidence on oath.

It considers documentary evidence more persuasive. Where the parties present conflicting oral evidence, the IFSO may not be able to establish what happened if there is no documentary evidence to assist.

The case underlines the importance of reading and understanding your policy document, as this, rather than any conversations you may have with your insurer, is what’s binding and counts.

Ensure your kids stick to the rules of their licences

The IFSO has recently also declined a complaint from a couple whose insurer refused to pay a claim after their son crashed their car.

The young man bumped into the back of a car which had slowed down. He had looked down to turn up the volume on the radio, and didn’t have enough time to hit the brakes to avoid bumping the car in front of him.

The policy was declined on the basis the man was carrying an unauthorised passenger while driving on his restricted licence.

The policyholders argued the breach didn’t cause or contribute towards the accident, but the IFSO said that had a suitably qualified person been in the car too, they may have helped prevent the accident by pointing out the car ahead had stopped and advising the driver to slow down for example.

Ensure you stick to the rules of your licence

The same principle applies to you. The IFSO has declined a complaint by a person whose insurer denied their claim on the basis they drove with breath alcohol above the legal limit.

The driver had a breath alcohol reading of 284 micrograms of alcohol per litre of breath - 34 micrograms above the 250 limit at the time of the incident.

He argued alcohol didn’t contribute to the accident, citing a police report which neither confirmed nor denied this had contributed to the accident.

But at the end of the day, he was driving unlawfully, so wasn’t covered.

For more car insurance tips and case studies, see the IFSO’s website.

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The policyholders argued the breach didn’t cause or contribute towards the accident, but the IFSO said that had a suitably qualified person been in the car too, they may have helped prevent the accident by pointing out the car ahead had stopped and advising the driver to slow down for example.

Well had the Martians arrived overhead and applied their tractor beam, that might have prevented the accident also. This is a red herring, a hypothetical that has no place as a serious argument, one I doubt would be seriously entertained by a court, and it leads me now to be cynical of the Ombudsman.

Either the driver was outside the scope of law and insurance is thus invalidated, or not - which is it?

I am curious as to how far this goes. Any cop will tell you that he can follow any vehicle he likes, and despite the best intentions of that driver he will eventually be given a legitimate opportunity to pull that vehicle over. It's not possible to avoid minor infractions 100%.

So, is all insurance invalidated and the con artists at the insurance co's given impunity...
- the moment my cruise control drifts 1 km/hr over the speed limit
- whenever I make a lane change without a full 3 seconds of prior indicating
- whenever I 'undertake' the idiot driving at half the speed limit in the RH lane
- whenever my headlight alignment drift out of standards compliance
- whenever I use my personally-insured vehicle to drop some work things off at my business place
- when as a restricted driver I take a badly sick/injured but 'unqualified' person to the hospital
- ......



The article made it clear that the restricted driver had a passenger (without a supervisor). This increases the risk on average because passengers are distracting. That is the precise reason why the conditions of a restricted licence don't allow passengers (without a supervisor). Most insurance contracts explicitly state that driving outside your licence conditions will invalidate your insurance because it is high risk. If a restricted driver takes a badly sick/injured passenger to hospital (without a supervisor) then that is up to them, but it isn't lawful and it is explicitly excluded from their insurance contract which in the case of my insurer at least (State) is written in plain English and easy to understand. The insurance contract clearly says high risk activities are not covered, such as driving with a passenger on a restricted license without a supervisor, or racing your vehicle on a racetrack. Why should other low risk drivers subsidise people who do high risk things that were clearly stated as excluded by the policy?


That whooshing is the sound of you missing the point.

The quote from the Ombudsman that I selected above shows an argument that is hedging its bets. They refer to the illegality of the situation, in which case the complainant's case (that the particular violation was not pertinent to the accident) is moot, but can't help themselves in nonetheless addressing said case by conjuring up an opposite hypothetical that is entirely inappropriate.

Why's it inappropriate? It is like an innocent but persecuted man being told he shouldn't have been in town on the night of the murder if he had wanted to avoid suspicion.

Risk is something that applies to the unknown. When it is known or can be proved, post facto, that a particular factor had nothing to do with the accident, prior probability (risk) is no longer relevant, and by definition should be excluded from the assessment.

So, to allow insurance co's to get out of payment because a non-relevant factor happened to violate any irrelevant regulation they can find, would be bad. There will usually be something they can find, mostly as a function of evidence and what it's worth to them in resources looking for it. So the insurance contract is now a rort, as the customer is not really getting the risk cover that they expected and paid for. Then you get the knock-on effects such as people concluding insurance is a scam or at least not worthwhile, so they don't bother with it.


Insurance as a rort is a fantasy perpetuated by media fixation on the minute number of claims that end up declined. Insurance Council data shows $2.5bn paid in claims per ann - approx $7m paid out every single day of the year. But good news doesn't sell papers.....


The market value issue is a difficult one, and it all boils down to how the market value is determined. A few years ago I worked for an insurance company, and saw a number of cases where car owners were successful in challenging the company on this. Those that succeeded usually took the line of asking the company where they could purchase a replacement of similar condition and mileage at the price offered in settlement. They had usually done their homework and presented a collection of current advertisements showing vehicles similar to theirs with a higher asking price than what the insurance company was offering in settlement. In most cases when faced with this scenario, the company increased their settlement offer.